Trustnet Magazine 51 May 2019 | Page 28

Your portfolio [ CHARGES ] 28 / 29 Fees have remained stubbornly high for too long, so why does the asset management industry think it should be trusted to give investors value for money? Daniel Lanyon finds out Guilty as charged? A n apocalypse did not in the end transpire back in 2012, despite the warnings of an ancient Mayan prophecy. In the same year, however, the Retail Distribution Review (RDR) did prompt end times for the dubious commission fees paid to financial advisers for recommending investments. RDR heralded the advent of greater transparency, which coincided with an increasing shift to low-cost passive funds and wider digital disruption to the investment industry. The question now is: will fees continue to fall? And, is this a good thing? FE TRUSTNET “Just a couple of percentage points can have a massive impact on long-term investments such as pensions” “A slow, lethal killer” First off, why do people pay so much attention to fees when the difference is often just a couple of percentage points? Tom Selby, senior analyst at AJ Bell, says that “just a couple of percentage points” can have a massive impact on long-term investments such as pensions, describing high fees as “a slow, lethal killer”. Using two extremes of 0.4 per cent at the bottom end and 1.6 per cent at the top, he points out that while neither of these charges sounds massive, over time the 1.2 percentage point difference will take a serious toll. “Take someone with a £100,000 pension pot at age 65 who starts withdrawing £5,000 a year from their fund and increases that each year in line with inflation,” says Selby. “If we assume a 5 per cent investment return each year, a 0.4 per cent charge would see the fund run dry by age 92. Given life expectancy for a 65-year-old woman is 88, that person could be quite confident that their pension withdrawals would last their whole life and they would have received a healthy £177,000 of income from their pot in total.” However, if the charges are increased to 1.6 per cent while everything else is kept the same, the fund runs out by trustnet.com